Late-Trading Fine To Be Cut In Pentagon Case

Aug 9 2013 | 10:54am ET

When the Securities and Exchange Commission lost a market-timing lawsuit before the U.S. Supreme Court earlier this year, it also lost millions in fines in another market-timing case.

Citing the high court's February ruling that fraud lawsuits must be filed within five years of the alleged crime, the U.S. Second Circuit Court of Appeals slashed the penalty levied against hedge fund Pentagon Capital Management and its founder. The court ordered the two to pay a combined $38.4 million in disgorgement, but said that the civil fine against the two must be cut. The trial-court judge had ordered Pentagon and Lewis Chester to pay nearly $90 million in disgorgement, civil penalties and prejudgment interest.

The issue? The SEC accused Pentagon of defrauding mutual funds with a late-trading scheme from June 1999 through September 2003—but didn't sue until April 2008.

The court did uphold the lower-court finding against Pentagon and Chester. Pentagon, which Chester shuttered just before the SEC sued, and its founder had argued that they did not seek to deceive anyone with their practices, and could not be held primarily liable for securities fraud as investment advisor. But Chief Circuit Judge John Walker wrote that late-trading is inherently deceitful.


In Depth

GSAM's Papagiannis: Liquid Alternatives For The Long Run

Apr 21 2017 | 8:44pm ET

Interest in liquid alternatives cooled a bit last year amid a broad shift in investor...

Lifestyle

Aston Martin Returns To Debt Market As DB11 Drives Turnaround

Mar 31 2017 | 5:21pm ET

James Bond’s preferred carmaker is returning to the public debt markets for the...

Guest Contributor

Debunking Conventional Investment Wisdom (Part II)

Apr 17 2017 | 5:56pm ET

The alternative investment industry is currently replete with buzzwords around data...

 

From the current issue of